Need Great Safe Stocks? Try Utilities

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By Jacob Maslow

utlity poleUtilities were very hot in 2014. They were some of the best-performing stocks last year. Unfortunately, on Wall Street, fortunes can turn on a dime. This is precisely what happened with utility stocks. As a whole, the utility sector is the worst performing among publicly traded companies on Wall Street.

What happened? Investors are actually rushing out of utilities to invest in higher-yielding bonds. There’s usually a tug-of-war between the dividends paid by utilities and bonds. If bond yields are low, utilities by comparison look attractive. However, once average bond yields start to improve, there is a lot of pressure for investors hell-bent on maximizing their income returns to shift to bonds. This is precisely what happened with utilities. They just got caught flatfooted. There’s really not much they could have done about it.

Moreover, the improved US economy has emboldened investors to take riskier bets. In fact, more and more investors are investing in material stocks and consumer discretionary stocks. These are some of the riskiest stocks out there. Since there is a higher appetite for risks among institutional investors, this has taken the wind out of the sales of many utility stocks.

Despite it all, I suggest you pick up utility stocks. Why? Utilities are great during economic uncertainty. It may seem that the economy is improving now and that the US jobless rate is going down but look beyond the illusion. All that is a mirage. I’ve already covered this in a previous post. We’re actually facing a lot of economic uncertainty, and utilities are definitely a great buy right now. You might want to wait until their prices continue to crash. Eventually, you should scoop up as much as possible.

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